Tax Attic September 12, 2013

As far as weekends go, I believe the Labor Day Holiday Weekend might just be my favorite. I know it more or less signals the end of summer, but the weather is usually still quite pleasant. The last few years, Deb and I have spent Labor Day at the Muskegon State Park. Before that, we camped at Manistee’s Orchard Beach State Park and before that we camped at a variety of northern Michigan parks from which we walked the Mackinac Bridge. At Muskegon, we have the option of taking a boat ride in Lake Michigan or, if that is too rough, Muskegon Lake. It’s a short ride via the water from the park to the Bear Lake Inn, located on the river between Muskegon Lake and Bear Lake, for some food and drink. We have the option of going to the beach on the Lake Michigan side of the park or going to the beach on the Muskegon Lake side of the park. No matter where we camp, we aren’t far from the channel. Boat watching is one of my favorite past-times, especially when it includes seeing the impressive Lake Express go by close up. The salmon fishing can be outstanding in Muskegon. It does take water in the 60 degree area and that doesn’t happen until we have some wind and wave action from the north or northwest. On Thursday, the water was 75 degrees. By Monday, it was 62 degrees. Once the water cooled off, the fish began to bite. They seemed to be bigger this year as well; perhaps not quite so plentiful, but we caught a few in the 18-22 pound class. Nice fish. One nice salmon of 20 plus pounds creates enough excitement to last quite a while. It also provides a significant amount of meat for grilling and smoking. All in all, Muskegon State Park is a good place for us to spend the Labor Day Weekend.

In today’s environment, the world of income tax is a year around business. The federal government continues to make laws and various departments within the government such as the Internal Revenue Service and the Department of Health and Human Services constantly pump out regulations that affect all taxpayers’ income tax returns. As we know, the state of Michigan also routinely passes laws with income tax consequences and the courts have a hand in the tax game as well. Contentious IRS audits end up in the various courts every day and these rulings create precedence for taxpayers and the IRS. The Supreme Court makes a ruling and the world of taxation gets turned upside down; i.e. over-ruling DOMA, the Defense of Marriage Act. Let’s go over some of the latest current events with tax consequences.

Starting with the demise of the Defense of Marriage Act, the IRS recently issued Revenue Ruling 2013-17 stating that as of September 16, 2013, legally married same-sex couples are to file their federal tax return as married even if they now live in a state that doesn’t recognize the marriage. This is the first of many, many rulings we are going to see in this area. By making the Revenue Ruling effective September 16, it will apply to tax returns filed on or after that day and will affect same-sex couples who might have filed an extension back on April 15 for filing their 2012 returns. Same-sex couples who want to file as single taxpayers should file their 2012 tax returns before September 16, especially if they would owe more tax by filing a joint return. If they wait until September 16, the married filing joint tax rules will apply. For taxpayers living in a state that does not recognize same-sex marriages, the IRS has ruled that the state tax rules will apply only to the state return. For example, Michigan does not recognize same-sex marriages but New York does. A couple is married in New York and then moves to Michigan. The federal government says the joint tax rules will apply to the federal return while the Michigan rules apply to the Michigan return. They may very well file a joint federal return but single Michigan returns. As more rulings occur, I will report on those rulings in future articles.

At the Michigan level, taxpayers who receive a governmental pension and who were not covered under the social security system are receiving letters from their pension provider explaining that new pension subtraction rules are taking effect for them. These new rules affect only those taxpayers who, while working, were not covered under the social security system such as firemen and police officers. For those affected taxpayers who were born between 1947 and 1952, they will be able to subtract an increased amount of pension. The regular pension rules allow those taxpayers to subtract $20,000 on single returns and $40,000 on joint returns. These new rules allow this affected group of taxpayers to subtract up to $35,000 on single returns and $55,000 on a joint return with one spouse receiving a governmental agency pension or $70,000 if both spouses are receiving a governmental agency pension. This is a significant easing of the pension subtraction rules. Stay tuned to Lansing for further tweaking of the pension subtraction rules. As we approach the end of the year, I will keep posting the changes and rulings that will allow us to efficiently do tax planning. This is Jerry Coon signing off.

 

Jerry Coon is an Enrolled Agent and

a Registered Tax Return Preparer.

He owns Action Tax Service on

Northland Dr. in Rockford.

Contact Jerry through his website:

www.actiontaxservice.com

 

 

 

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